AUD/USD - below 23.6% Fib, eyes yield differential & budget update

• AUD flat lined below 0.7648 (23.6% Fib R of Sep/Dec decline).
• Negative Aus-US rate spreads could hurt AUD.
• Focus on the Aussie mid-year budget update.

AUD/USD is trading in a sideways manner below 0.7648 levels in Asia as investors await the Aussie mid-year budget update.

According to Westpac, forecast nominal GDP growth for 2017/18 is likely to be upgraded to 4.5% from 4.0% at Budget time.

While the upward revision of the GDP would be AUD positive, still sustained gains would require a sharp rise in the AUD-US yield spread. Bill Evans, Chief Economist at Westpac fears that a sustained period of negative Australian vs US rate spreads could lead to a move down to USD 0.68 in 2019, with downside risks. 

Evans expects the Fed to hike rates twice in 2018. He adds, " That would see the AUD/USD yield differential in the overnight market contract to minus 38 basis points – a situation we have not seen early 2000. A heavy toll will be taken on the AUD with the currency forecast to fall to USD 0.70 by the end of 2018."

AUD/USD Technical Levels

Jim Langlands from FX Charts writes, "the short-term indicators are now pointing lower, and a run back towards 0.7620/30 would not surprise, below which would allow a run back to 0.7600 and possibly to 0.7575/80. The dailies still currently look positive but as I said previously, now that US rates are at parity with Australian rates I do not really think that the Aud has too much upside from here, and I would be looking for levels to sell into strength.

Resistance today lies at 0.7665/70

Sell AudUsd @ 0.7670. SL @ 0.7705, TP @ 0.7580